scooby_dooby
Legend
It really doesn't work that way. Xmas spending doesn't carry over to spring for one thing.
NPD March 2007
- Thread starter Hardknock
- Start date
- Status
It really doesn't work that way. Xmas spending doesn't carry over to spring for one thing.
That could be it....If they are losing money now on each console sold and then cut the price before 65NM is here then they bleed that much more until 65NM gets out (specially in the slower season of the year-summer).
Most likely scenerio is that both MS and Sony cut price in the fall.
I know what your argument is, but Microsoft - for reasons obviously - feels differently. The fact that they feel differently is obviated by their business decisions. Doesn't mean they're right, doesn't mean you're wrong, but I don't think blanket statements as to revenue/profits generated per console can be made to justify a price reduction. We would need to know the average profit generated per 360 over its lifetime to know whether or not a price cut at current manufacturing costs make sense. And right now, we know that there's no profit per console at all. Obviously that picture changes as the years go by, and I do think 360 will be profitable before too long. But the buyers that pick it up later on won't (in all likliehood) share the aggressive buying pattern of the present install base... the 'hardcore.'
I made the comparison because you made a blanket statement in terms of install base being the only viable business model in the world of consoles. XBox and 360 don't have much to do with each other in terms of their manufacturing... but that doesn't change at all the point I was making.
Well, I disagree with Stefan in that I feel developer support has already 'arrived.' In the West, it's nearing PS2-era levels on track to become the default (HD) platform of the gen, if it hasn't already been locked into that position.
Scooby you're going too far here in framing my position - do you think I'm taking a position against consumer demand for lower priced electronics? That's not what I'm saying.
In fact, I don't see what we're even discussing - my posts are directed towards your view that this move by MS is the 'wrong' one; I'm not saying it is or it isn't, but I'm playing devil's advocate in light of your adamant view that it *is* the wrong one. If there wasn't a flip to the coin, we wouldn't be discussing it, they simply would have done it.
Last edited by a moderator:
scooby_dooby
Legend
Umm, no I didn't. I added a specific caveat "unless you're selling at massive losses"
I understand the point your making, yes there are alternative business models. But in this specific case, MS has already setup a business model that will reward them in spades if they can capture the market lead, so install base does equal success in this case. They have a very inexpensive console, and can be reaping money for years if they establish themselves as the world leader.
scooby_dooby
Legend
I'm just wondering what trend you see changing...I think it's fairly safe bet that this generation of consoles wil lalso enjoy a similar tail to the previous generations.
And, I realize you're playing DA here, and really we're not so far apart, because I don't think it's quite the wrong move...yet. But the window is closing, where MS should make a move or they will really be penny wise and pound foolish at the end of the day.
And I do think they probably realize this.
I am going to go further than you Carl B. and say what i think : i am not sure this is the right moment to a price drop for Xbox360.
The fact that PS3 is actually in a weak position does not imply 'in all cases' that Microsoft has to be agressive price-wise, because price drop will maybe not translate to more sold units.
The danger for Microsoft ATM is that Xbox360 could be seen by consumers as the 'intermediate' device between Wii (cheap and less powerful) and PS3 (expensive and high end).
The move to 'elite' was to face PS3 as a high end product. (i don't say it is a good idea). A too early price drop could crystalize that view, and put Microsoft in a difficult situation, because facing Wii price wize ATM does not seem a good idea (Wii has the momentum actually) , and next years PS3 will be more affordable and cheaper (but seen as high end).
The fact that PS3 is actually in a weak position does not imply 'in all cases' that Microsoft has to be agressive price-wise, because price drop will maybe not translate to more sold units.
The danger for Microsoft ATM is that Xbox360 could be seen by consumers as the 'intermediate' device between Wii (cheap and less powerful) and PS3 (expensive and high end).
The move to 'elite' was to face PS3 as a high end product. (i don't say it is a good idea). A too early price drop could crystalize that view, and put Microsoft in a difficult situation, because facing Wii price wize ATM does not seem a good idea (Wii has the momentum actually) , and next years PS3 will be more affordable and cheaper (but seen as high end).
I can understand MS being a bit conservative at this point. Profitability is more important then being market leader. They have sustained good sales up to this point especially considering they been at their original price point for the last 17 months. Its the middle of the year, a particularly slow time for sales, so there really no need to generate demand especially when they can use this time to clear out inventory and start fall off with a bang.
Selling 1.4 million (350K a month) over the next 4 months will generate 418 mil in revenue at the $299.00 price point. 800K (200K a month) will generate 319 mil at the original price point. Profits might be a different matter as a $100.00 price cut might push MS from a profit per console to a lost per console. Waiting for the fall might allow MS to reduce cost so that a lower price point won't affect their bottom line. Plus if MS cuts price now and Nintendo responds in kind and is able to up manufacturering up to 1.5 mil (versus 1 mil) then MS might find itself with just a slight uptick in sales. I find no reason to initiate price cuts when demand is at its lowest and Nintendo has more flexibility in cutting its prices.
A price cut in the Fall followed by the release of Halo 3 and GTA will go a long way to generate demand.
Selling 1.4 million (350K a month) over the next 4 months will generate 418 mil in revenue at the $299.00 price point. 800K (200K a month) will generate 319 mil at the original price point. Profits might be a different matter as a $100.00 price cut might push MS from a profit per console to a lost per console. Waiting for the fall might allow MS to reduce cost so that a lower price point won't affect their bottom line. Plus if MS cuts price now and Nintendo responds in kind and is able to up manufacturering up to 1.5 mil (versus 1 mil) then MS might find itself with just a slight uptick in sales. I find no reason to initiate price cuts when demand is at its lowest and Nintendo has more flexibility in cutting its prices.
A price cut in the Fall followed by the release of Halo 3 and GTA will go a long way to generate demand.
I was thinking H3/GTA4 SEPT/OCT launches be at full price and then November 15th (2 years after launch) drop it for the Holidays..... boom!
You have to compare the additional loss of a price drop with how many users they'd gain compared to dropping it later, when they can do it without losing money. For a really substantial leap in install base, say an extra 5 million users, you're looking at an additional $250 or $500 million in losses at the bare minimum, depending on if it's a $50 or $100 price cut. The loss will likely be more, since the less committed buyers also don't buy as much software. Further, the loss won't be recovered in the sense of resulting in a net gain, because those buyers would have bought a 360 and however much software anyway once the price fell, since whenever 360's price drops, there won't be a comparable product at the same price point.
And then you have to look at the net effect. Would such a gain result in the PS3 being dead and buried? Does it matter if you're pouring product into the market anyway? What economic goal is worth dropping a half-billion dollars? MS is sitting pretty right now; I don't see anything a price cut would gain them that's really worth the immense cost.
And then you have to look at the net effect. Would such a gain result in the PS3 being dead and buried? Does it matter if you're pouring product into the market anyway? What economic goal is worth dropping a half-billion dollars? MS is sitting pretty right now; I don't see anything a price cut would gain them that's really worth the immense cost.
Halo3 and GTA4 are bound to move a large amount of HW, possibly over several months. If MS drops the price now, there is no going back. If they can draw their current price point (perhaps with the help of a rebate or some bundling) up to the release of those games, they will save millions (perhaps even make a couple on HW). They can still drop the price in time for holidays.
Against Sony, they already have a nice price advantage (less so with the Elite), and the battle will be decided on SW (someone considering a PS3 could obviously afford a 360 instead). Against Nintendo, I don't think a price drop would help, as the Wii is still supply-constrained.
Against Sony, they already have a nice price advantage (less so with the Elite), and the battle will be decided on SW (someone considering a PS3 could obviously afford a 360 instead). Against Nintendo, I don't think a price drop would help, as the Wii is still supply-constrained.
DuckThor Evil
Legend
I was thinking H3/GTA4 SEPT/OCT launches be at full price and then November 15th (2 years after launch) drop it for the Holidays..... boom!
I think the smartest choice for MS would be to sell with current prices till January and then drop the price 100$. I'm quite sure that if we look at the following two possible scenarios.
1 MS drops 100$ of the price in june/july and sell at that price tag until next summer and perhaps beyond
2 MS keeps the current price tag until Jan 08 and then drops 100$ of the price.
I think that no matter which one they would choose, the installed base of the X360 would be almost identical if it was measured in summer 08, because christamas season sales would be great despite the price due to the exceptionally strong line up.dropping the price six months earlier would make a small spike in installed base, but dropping the price in Jan 08 would net a nice boost for the system, therefore Imo the only major difference between those two strategies is the amount of profit MS would be able to make until that summer 08, and keeping the current price tag until Jan 08 would make a huge difference in that number in a positive way. Imo it's by far the smarter choice.
Things change however if Sony drops the price of PS3 soon, but even then a price might not be absolutely needed as the strong game library could be able to keep the momentum against PS3. I think people are thinking this situation too much in a way of MS vs Sony mainly in a way that the main focus should be to but knifes into the competitors stomach. The goal here is to make money in a smart way, killing your opponent may not be necessary and if it takes desperate kamikaze attacks (price cuts that aren't necessary) it might be even stupid. Of course they have to follow each others actions very carefully, but maybe some sort of peaceful co-existence could be possible and even be healthy to the bottom line?
Last edited by a moderator:
scooby_dooby
Legend
Disagree completely, I think sales in Jan forward would be basically the same, regardless of whether they drop the price now, or after Xmas. But they would lose out on a huge number of prospective buyers from June - Dec.
I don't really understand the rationale here, it's not like 40k/week is especially good numbers. They are mediocre, 360 has had mediocre numbers for a long time now. If it was selling strongly I would understand the position a little more.
Thing is, once PS hits <$300 I think it's going to outsell 360 fairly badly, it has BR, it has more established IP's, and it has a huge huge following with the PS2. So IMO, MS is making a big mistake with this wait and see attitude, what they should be doing is increasing their install base as much as possible, while PS3 is still stuck in limbo, because they're going to have a real fight on their hands once it reaches mainstream pricing.
When do you believe the PS3 is going to be $300?
I agree 100% with this. MS are IMO going to look back at their lead in three years or so, and say to themselves, "Gee, we should have twisted the knife while we had the chance!"
As is, it looks like high quarter-on-quarter profits are more important the MS over higher marketshare and lifetime market leadership and profits.
I just don't see mass waves of PS2 owners moving to PS3 because they owned a PS2. They just won't. First of all the mass number of PS2 owners owned a PS2 because it typically had the much stronger line up, it also was the most popular from the start. Xbox was just on the market and Nintendo had shot themselves in the foot with image (very important these days).
However, now everyone knows what Halo is, the Xbox name is established, Nintendo is looking like a gold mine and for over a year now it has been the trend to take jabs at Sony the entire time. Totally different. PS2 owners will go to the console that offered them the same experience as the PS2 but only newer, which by the looks of it will be the Xbox 360. It'll have the lower price, right now the apparently stronger or equal library and it is established and supported. Unless Sony manages to out price the Xbox 360 (which it won't) then there's no way I see some massive swing somewhere down the line. I believe PS2 owners are waiting because of price on both consoles, not because of the price of the PS3 alone.
However, now everyone knows what Halo is, the Xbox name is established, Nintendo is looking like a gold mine and for over a year now it has been the trend to take jabs at Sony the entire time. Totally different. PS2 owners will go to the console that offered them the same experience as the PS2 but only newer, which by the looks of it will be the Xbox 360. It'll have the lower price, right now the apparently stronger or equal library and it is established and supported. Unless Sony manages to out price the Xbox 360 (which it won't) then there's no way I see some massive swing somewhere down the line. I believe PS2 owners are waiting because of price on both consoles, not because of the price of the PS3 alone.
The Xbox had a lower price than the PS2 for most of its lifetime and it failed to help MS. Its all about the games and at the moment PS3 doesn't have any heavy hitters, and thats the problem for Sony.
If MS can absorb a 4 billion dollar lost on a console then so can Sony. A price cut by MS that would have any bearing the sales of the PS3 would force a price cut by Sony. Sony is not Sega, price cuts are not going to run them out of the business, so price cutting as a strategy of attrition is useless.
MS is not going to cut prices without responses from Nintendo and Sony. A $299 Premium might trigger additional sales but so would a $175.00-$200.00 Wii or a $475.00-$500.00 60Gb PS3. Staying still at the moment might be prudent if it helps the PS3 stay at a price tag that most find unacceptable for next gen gaming.
MS is within 60K of the Wii and 70K in front of the PS3. While the Wii may be supply constrained it still helps MS. Until this scenario changes, MS can maintain cruise control until either the 360 monthly sales start getting too close to the 100K range or the PS3 or the Wii picks up sales.
Yes, if both platforms have the same games, then price will be a major factor, but this is still not the case. There are still exclusives on both sides.
Actually the X360 'at the moment' has more compelling titles or must haves, thus reflects its current sales.
I don't think a $175 Wii would trigger much more sales for Nintendo, though, as they are already selling everything they can produce at the current price point....
- Status